Trenton Potteries: A Reasonable Price Was No Defense

Trenton Potteries price fixing produced a 1927 Supreme Court ruling in a criminal case that rival sanitary-ware manufacturers could not defend their price agreement by calling the prices reasonable. For a pricing employee who knows why a customer quote followed an association bulletin, that is the useful question: who chose the price, and what had the competitors agreed to do?

The Manufacturers Behind the Price Agreement

The antitrust case concerned vitreous pottery fixtures used in bathrooms and lavatories. Trenton Potteries and the other defendants belonged to the Sanitary Potters’ Association and controlled 82 percent of the country’s sanitary-pottery manufacturing and distribution business. Their factories were spread across several states, with a large group in New Jersey and an important market in southern New York.

The Supreme Court’s account of the criminal indictment describes an agreement to fix and maintain uniform selling prices in violation of the Sherman Act. It also describes a separate charge that the defendants limited sales to a selected group of jobbers, the wholesale dealers buying the pottery.

A jury found the defendants guilty. The Supreme Court reinstated the trial court’s judgment after a lower appeals court had overturned it. The price-fixing count supported that result, and the Court rejected the demand that the jury also decide whether the agreed prices were reasonable.

How the Price Bulletins Reached Buyers

The association’s price bulletins circulated where its members sold pottery. According to the Supreme Court’s opinion in the criminal case, witnesses for both sides described business in southern New York, the circulation of the bulletins and sales by association members there. The association secretary also testified that he made sales in the district on the association’s behalf.

A pricing clerk in a similar business can explain that connection. An association schedule, an instruction to use it and the resulting customer quote show how an agreement became an offer. Meeting records and competitor communications can explain who settled the terms before the sales office put them into use.

The clerk’s knowledge can also distinguish the instruction from its implementation. A manager may direct the use of a common schedule while a salesperson changes a particular quote. Knowing what the instruction covered, who received it and what the customer actually saw gives each document its commercial meaning.

Why a Reasonable Price Was No Defense

The Court rejected the reasonable-price defense because the manufacturers had agreed to control a form of competition. Their power to set a reasonable price also gave them the power to set an unreasonable one. The Court explained why a price that seemed acceptable at the start could not settle the issue:

The opinion continued that the price could remain unchanged because the agreement had removed competition. Requiring the government to keep checking whether that price had become unreasonable would turn enforcement into a running review of the cartel’s chosen number. The Court instead treated the agreement itself as the restraint.

We see the absurdity in the manufacturers’ defense: the people who fixed the price wanted to be its judge. Buyers would still have lost the independent pricing decisions that competition was meant to provide. A reassuring explanation of the price did not restore those decisions.

For an insider, that puts the instruction behind the number in view. The relevant account explains how rivals settled on a price and how the business acted on their agreement. It also explains the product, customer and transaction to which the instruction applied, rather than leaving the case at a general impression that prices looked alike.

The Effort to Keep Second-Grade Pottery Abroad

The criminal case also examined an effort to keep second-grade pottery out of the domestic market in support of the price agreement. The Supreme Court described government evidence that the manufacturers intended to reserve Class B pottery for export. A separate association of jobbers was cooperating, and its secretary had offered active help with that effort.

The testimony also showed that at one point twenty out of twenty-four association members were selling Class B pottery domestically. They had promised to reserve it for export and kept selling it at home.

This part of the case reaches beyond a price list. The government was examining an effort to control which grade of product domestic customers could buy, with help from the wholesale side of the trade. An employee familiar with product grades or export orders can recognize a restriction that someone reading only the final invoice price might miss.

In a comparable business today, instructions reserving a grade for export could be read alongside domestic orders for that same grade. A sales or shipping employee might know whether the restriction came from the company’s own decision or a commitment to rivals. That knowledge could explain both the intended restriction and the orders that departed from it.

What the Actual Transactions Could Show

The trial admitted details of transactions and records of actual prices while rejecting vague witness impressions about whether competition existed. The Supreme Court’s criminal opinion describes manufacturers and wholesale dealers whom the defense called to say that the companies competed. When a witness described specific sales, the testimony was allowed, and the parties facilitated the use of transaction records.

That is a useful distinction for whistleblower evidence inside a sales office. A general account that the business fought hard for customers tells us less than the explanation of a particular quote, the instruction behind it and a rival’s involvement. The employee who understands the files can explain why a price changed, why it stayed fixed or why a product was withheld from a customer.

A 2018 paper in the Proceedings of the Creative Construction Conference, Review of Collusion and Bid Rigging Detection Methods in the Construction Industry, explains why inside knowledge adds something price screening cannot supply by itself. The review distinguishes methods that identify suspicious patterns from reports by current or former employees that can supply direct evidence of collusion. It argues for using those approaches together and emphasizes knowledge of how the market actually works.

The same connection between an agreement and a customer quote appears in Yazaki‘s automotive-parts case. In its criminal plea agreement, Yazaki admitted allocating business by vehicle model, rigging quotations and coordinating responses to automakers’ pricing requests. A customer’s pricing request became another decision the rivals could coordinate. Account managers and bid analysts could connect the allocation to the quote versions and the response to the customer.

For a sanitary-ware employee, the corresponding knowledge might sit in the common schedule, the instructions for a particular buyer or the decision to sell a grade only abroad. We work with the person who can explain those connections, including where the actual orders departed from the instruction.

Could a Price Agreement Like This Pay a Whistleblower Today?

Someone seeing a comparable price agreement today could have information relevant to an antitrust whistleblower reward. The Justice Department and Postal Service rewards program offers that possibility, and our experts work with you and antitrust whistleblower lawyers to assess how your information fits.

Where coordinated prices reach government purchasing, we also examine whether false bids or invoices caused the government to pay. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The buyer, the payment and the company’s statements to the government determine what that route adds to a pricing case.

Talk with us about questions concerning whistleblower protection or your own part in carrying out an instruction. Our experts bring in whistleblower lawyers who understand cartel evidence and the reporting options for your role, so the business facts and your circumstances are considered together.

You Know Who Chose the Price

If you know why your company followed a rival’s pricing decision or kept a product away from particular buyers, tell our whistleblower experts what happened inside the business. We build the case around that knowledge and bring in antitrust whistleblower lawyers who can connect the agreement to the transactions it controlled. We stay beside you from the first account of the agreement through the pursuit of your whistleblower case.